Just like yesterday, we saw strength very early in the day, but then we drifted and failed to gain any further traction. The atmosphere was upbeat and we had good breadth again, but volume contracted, which is exactly what you expect during holiday trading.
The difficulty in this environment is that with volume falling so much, it is very hard to anticipate continued momentum. Even if something does appear to be set up well, it is tough to have confidence that buyers are going to show enough interest to keep things moving.
The most interesting thing about the action today was the continued strength in the dollar. That did weigh on gold, but the broader market seems to be indifferent to it. The weak dollar is what helped keep this market rallying all summer, so it's a little surprising that the stronger dollar is not having a more negative impact on the market. The inverse correlation with the dollar was extremely strong at times, but luckily for the bulls, that relationship is not holding now.
With volume sure to slow even more in the next couple days, I'm watching very closely for the very complacent bulls to be surprised by a flurry of profit-taking. So far there are few signs of that happening, but I believe conditions are ripe for the bulls to be caught by surprise. And if they are, many will be happy to just close up shop and call it a year....